What Our Dividend Investing Changes in 2020 Tell Us About 2021

Dividend Investing, High-Yield Investments, Pandemic

This time last year, the WHO was about to label the novel coronavirus that was spreading across the globe a pandemic, and no one knew where it would lead, either for our health or the health of the economy. We were at the beginning of not only a deadly pandemic, but also a severe stock crash.

The uncertainty, fears, and falling stock prices led to both failed investments and tremendous opportunities for investors. Here is how I navigated the crash and recovery for my income-focused subscribers.

In my Dividend Hunter newsletter, I recommend a list of diversified high-yield investments. I put the recommendations together to cover the full range of high-yield sectors. The problem in February and March 2020 was that every high-yield sector, even the most conservative, crashed. Share prices fell 50% to 80%. There was no safe harbor for income-focused investing.

With the economic uncertainty, hundreds of dividend-paying companies choose to slash or suspend dividend payments. Through a “regular” stock bear market, income-focused investors could count on steady dividend income, even if their brokerage account values turned ugly. This time, income disappeared along with portfolio values. Since a pandemic triggered the market crash, many investors wondered whether it would be different this time.

And it was different. Every stock market crash has its triggering events and a unique recovery. The recovery cannot be seen until it is in the history books. As we went through the market crash and bottoming, I made the following recommendations.

  • I recommended selling any stock where the company completely suspended the dividend. Our focus is on building an income stream, and zero dividends don’t work for that.
  • For the first time in the Dividend Hunter history, I recommended individual preferred stocks. Preferred stocks pay very secure dividends, but this sector fell along with every other high-yield category. Loading up on preferred stocks allowed my subscribers to lock in 12% to 15% yields-on-cost for the long term plus the share price gains – some over 100% as the preferreds values recovered back toward their par value.
  • When companies announced unchanged dividends, i.e., they didn’t cut their payouts, I told my subscribers to load up on these stocks’ shares. I like companies that put shareholders first.
  • For those Dividend Hunter investments that cut, but did not suspend, dividends, I recommended holding current positions until we could get more information, typically at the next quarterly earnings call. With first-quarter earnings coming out around the end of April 2020, that news was available fairly quickly.

A few things happened in the early months following the February–March crash. First, values in the high-yield sectors did not recover as fast as the broader stock market indexes. As a result, we (my subscribers and I) had several months to load up on cheap shares with great yields. I was also able to monitor a couple of quarterly earnings results to ensure our companies were on track.

Second, even though I recommended selling many Dividend Hunter investments at deep losses after they suspended dividends, putting the money from those sales into the investments that continued to pay dividends resulted in a faster recovery in account values and a rapidly growing income stream. Keep focused that we’re in this for building an income stream, not finding the next TSLA or NIO because they don’t pay dividends.

The lesson learned was that it pays, and pays big, to buy income stocks when the markets are in a panic. However, in the case of 2020, detailed knowledge of individual business operations was required in order to decide which stocks to unload and which one on which to load up.

The bottom line is that my subscribers who followed my guidance through the 2020 stock market crash and recovery now have portfolios that are much more valuable than they were before the crash. Their income streams have increased even faster. Yet, most of our income investments remain undervalued compared to historical norms, pointing to a potential for further gains and income growth.

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